Ministry of Justice - Consultation on the Draft Damages Based Agreements Regulations 2010

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Thompsons is the most experienced trade union, employment rights and personal injury law firm in the country with offices across the UK. On employment and industrial relations issues, it acts only for trade unions and their members.

Thompsons represents the majority of UK trade unions and advises on the full range of employment rights issues through its specialist employment rights department.

Introduction

We are pleased to have the opportunity to take part in this consultation. We made detailed observations as part of the consultation process in response to the Ministry’s consultation paper “Regulating Damages Based Agreements” published in July 2009. We repeat those observations for the purpose of this consultation, although we do not set them out in full.

As we said previously, we believe that two principles should prevail:

1. Cost information relating to Damages Based Agreements (“DBA’s”) should be clear, comprehensive and given at regular intervals;

2. The Claimant should be advised, from a specified period after the entering into of the DBA, and at regular intervals, as to the amount that the adviser considers will be recoverable, and the deductions from that amount that will be made in respect of allowable charges.

Whilst the draft Regulations go some way to addressing the first of these principles, we believe that more detail should be required, particularly as to the types of expenses which may be payable. We also do not believe that the draft regulations make satisfactory provision in relation to the second of these principles. As the draft Regulations stand, there is no requirement that the representative provides any estimate at all of the likely sum recoverable by the client.
Our specific comments are set out below.

Regulation 1: Citation, commencement, interpretation and application

The definition of a “client” only applies to a person who is liable to make a payment for services. It is possible that an individual being represented under a DBA may not actually become liable to make any payment at all. We suggest that the definition be amended to read “…..and may become liable to make a payment for those services.”

The definition of “costs” contains no requirement that the costs should be fair and reasonable. It should do.

The definition of “expenses” is not exhaustive and is said to “include” Counsels’ fees and the expense of obtaining an expert’s report. The Moorhead and Cummings research identified as a problem the fact that Claimants may not appreciate the types of expenses that may be charged.

A particular issue was identified in relation to representatives’ travel expenses.

The problem is compounded by the fact that, as it stands, Regulation 4 makes no requirement for the amount likely to be spent on expenses (which must be given before the DBA is entered into) to be updated as the matter progresses.

We remain firmly of the view that is in the nature of a DBA that all expenses should be included within the percentage deduction from compensation and that no further charge should be made to the client.

If expenses are to be chargeable separately, we believe that payable expenses should be limited to Counsels’ fees and the cost of obtaining an expert’s report in Disability Discrimination cases.

In any event, the types of payable expenses should be listed exhaustively.

The definition of “expenses” should also make clear that they should only be recoverable if prior authority for incurring them has been obtained by the representative from the client.

Regulation 2: Agreements to comply with prescribed requirements

The drafting of Regulation 2 is somewhat confusing because the term “enforceable damages-based agreement” is not itself defined in the Regulations. The clear intention of the draft Regulations is that a DBA which does not satisfy the requirements of Regulations 3,4,5 and 6 is void and therefore not enforceable. We suggest that Regulation 2 would be clearer if it simply said that.

Regulation 3: Requirements of an agreement

Draft Regulation 3 does not include a requirement that the agreement should specify the actual percentage of compensation recovered that will amount to the payment. We do not believe that the requirement to set out the “method” used to calculate the payment is sufficient because it does not refer to the specific percentage.

There should be a further requirement to make it clear whether the figure to be arrived at under the calculation method will have VAT added to it. This was one of the areas identified by the Moorhead and Cummings research as being one where additional clarity was needed.

There should also be a further requirement to set out what the payment and expenses will mean to the client “in pounds and pence”. By the time the DBA is discussed with the client, the representative should have formed a view as to the likely value of the claim, thereby enabling this explanation to be given.

There should also be a requirement for an explanation as to how the client may review the costs and expenses and what procedure will be followed.

Regulation 4: Information to be given before an agreement is made

We believe that there should be two separate requirements: to provide information before the DBA is entered into; and to provide further information after the agreement has been entered into.

As it stands, the heading of draft Regulation 4 suggests that information is only required to be given before the agreement is entered into. The ability of a client to request further explanation, advice or information apparently ceases to apply once the DBA has been entered to. That can not be what was intended.

We believe that further investigation and information should be required in relation to alternative methods of pursuing a claim. Personal injury lawyers are required to ask clients about alternative funding before entering into a Conditional Fee Agreement. The same requirements should apply in relation to DBA’s.

In particular, the representative should be required to ask the client in writing if they are a member of a trade union, and there should be a requirement for a written response before the DBA is entered into.

The representative should be under a duty to inform trade union members in writing that they have may a right to free legal representation in accordance with their trade union’s legal advice and assistance scheme, with no deduction typically being made from compensation recovered.

Draft Regulation 4, like draft Regulation 3, contains no requirement that the client should be informed before the DBA is entered into how the representative’s payment will be calculated - ie what percentage of the compensation is recoverable. Such a requirement should be inserted into both Regulations 3 and 4.

Again, draft Regulation 4 should require the representative to make clear whether or not VAT will be added to the representative’s payment.

The Regulations should include a requirement for the representative to say, before the DBA is entered into, how “costs” will be calculated, and to provide a reasonable estimate of the likely costs that will be incurred. This will be important so as to ensure that the client is fully informed of the consequences of termination of the DBA.

The Regulations should then make provision for further information which should be required to be provided after the DBA has been entered into.

Within a specified period after the DBA has been entered into, the representative should be required to inform the Claimant of the likely sum recoverable, and the payments that will be required on account of expenses. The Claimant should be informed, in “pounds and pence” of the anticipated net benefit that they should expect to receive under the DBA.

The representative should then be required to update that information about the likely net sum recoverable at regular intervals. In particular, further information should be provided about the likely net sum, recoverable when ever a circumstance arises which causes the representative to revise the estimate of the net sum recoverable.

Regulation 5: Form of an agreement

It is inconsistent for there to be a requirement that the DBA must be signed by the client, but that there is no requirement for the DBA actually to be in writing. We believe that there should be a requirement for the DBA to be in writing.

Regulation 6: The Payment

We remain firmly of the view that the representative should not be at liberty to add VAT to the maximum amount of the payment. The maximum amount of the payment should include VAT.

Draft Regulation 6(3) should provide that the representative should repay to the client any amount recovered in excess of the agreed payment. The agreed payment may be less than 25% of the sum recovered and any excess over such amount should be paid to the client.

Regulation 7: Termination

We are concerned that the Regulations should make it clear when a representative is entitled to make charges on termination. We suggest that draft Regulation 7 is re-drafted as follows:

“7. If a damages-based agreement is terminated:

(i) by the client, the representative may charge the client no more than the reasonable costs and expenses for the work undertaken in respect of the client’s claim or proceedings ; or
(ii) by the representative, save where the reason for the termination is a failure to accept a reasonable recommended offer or the client’s wilful misconduct, the representative will not be entitled to make any charge, whether in respect of the payment, costs or expenses or otherwise.”

Other matters

The Ministry already has our comments on other matters associated with the regulation of DBA’s which have not been taken into account in the draft Regulations. These include separate provision in relation to multi-claimant claims, provision of machinery for challenging costs and the need for a cooling off period. We maintain that these are all matters which need to be reflected in the draft Regulations, for the reasons already given, and we invite the Ministry to re-consider their inclusion.

Of particular concern is the position in relation to multi-claimant claims. We believe that it would be sensible to define such claims as those where there are 10 or more claimants and the combined value of their claims is, say, at least £200,000. In that case, we believe that a lower maximum percentage should apply than that currently specified in draft Regulation 6.